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Seattle Genetics' Agreement with Immunomedics: The Benefit Vs. the Risk

Prohost Biotech - Tuesday, February 14, 2017

Immunomedics (IMMU) and Seattle Genetics (SGEN) announced an exclusive global licensing agreement enabling Seattle Genetics to develop, fund, manufacture, and commercialize Immunomedics' solid tumor drug candidate IMMU-132.

Seattle Genetics accepted to take the responsibility for initiating Phase 3 clinical trial of IMMU-132 for patients with metastatic triple-negative breast cancer (TNBC) and submitting the initial Biologics License Application (BLA) to the FDA for accelerated approval.

Also part of the agreement includes developing additional indications for IMMU-132, including urothelial cancer (UC), small-cell lung cancer (SCLC) and non-small-cell lung cancer (NSCLC) currently in Phase 2 clinical studies plus other solid tumor indications.   

In the story, we learn that Immunomedics has chosen Seattle Genetics to accomplish the above tasks after a long period of interactions with other interested candidates and considerable discussions with Seattle Genetics.   

Per the terms of the agreement, Immunomedics is to receive $250 million in upfront cash payment, plus an additional $50 million (or negotiated economic splits) relating to rights outside the U.S., Canada and the EU. The remainder of the consideration comprises approximately what would amount to $1.7 billion upon achieving certain regulatory and sales milestones, including an anticipated near-term milestone following the FDA acceptance of the Biologics License Application (BLA) for the triple negative breast cancer (TNBC); additional milestones based on regulatory approval of IMMU-132 for TNBC in the U.S. and other territories and future development and regulatory milestones for additional indications beyond TNBC. Future royalty payments to Immunomedics are tiered double-digit royalties based on global net sales.

Immunomedics will retain the right to elect to co-promote IMMU-132 in the United States by participating in 50% of the sales effort, subject to certain parameters set forth in the agreement.

Upon completion of the transaction, each of the two firms will appoint representatives to serve on a Joint Steering Committee (JSC) to be chaired by a Seattle Genetics representative. The JSC will be responsible for determining the overall development, commercialization, manufacturing and intellectual property strategy for IMMU-132.

The companies expect the transaction to close in the first quarter of 2017, subject to expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other conditions.

Modified Go-Shop Period: Under the terms of the agreement, for a limited period, through February 19, 2017, Immunomedics has the right to continue negotiating with a select number of parties still in the strategic process, and accept a superior proposal.

Seattle Genetics has the right to match any superior proposal. In case it decides not to match, Immunomedics has the right to accept the superior proposal and terminate the proposed development and license agreement upon payment of a termination fee to Seattle Genetics.

Equity Investment: Concurrent with the transaction, Seattle Genetics is purchasing 3,000,000 shares of common stock, representing an approximately 2.8% stake in Immunomedics, at a per share price of $4.90, which represents a 10% premium to Immunomedics' 15-day trading volume weighted average stock price of $4.45 for the period ending at the close of trading February 9, 2017, the last trading day prior to entering into the global licensing agreement.

Seattle Genetics will be issued a three-year warrant to purchase 8,655,804 shares of common stock at the same price, which shall be exercisable when the Company has sufficient authorized shares of common stock to enable the exercise of the warrant.  

The transaction is expected to close in the first quarter of 2017, subject to expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other conditions.

Advisors Greenhill & Co., LLC, is serving as financial advisor to Immunomedics and DLA Piper LLP (US) is serving as legal advisor on the transaction.

Prohost Observations

Shares of Immunomedics rallied, while shares of Seattle Genetics have slightly declined, insinuating that investors believed that Immunomedics has gotten the lion’s share out of the benefit from this agreement. These investors might have based their opinion on the fact that Immunomedics will get around $300 millions in upfront payments, which will take care of whatever Immunomedics will decide are its priorities. Also, the firm is putting its IMMU-132, which is an antibody drug conjugate (ADC) in the hands of the king of the ADC technologies and products to take care of it until its approval and into marketing. This agreement, they believe, seems great for Immunomedics. With regard to Seattle Genetics’ benefit, if any, this would come only after the marketing of the product, which is not guaranteed.        

Other investors, though, believe that Seattle Genetics could be the big winner in this agreement. In their opinion, the licensing agreement has already added another investigational ADC product into SGEN’s pipeline of ADC products. The product promises to treat triple negative breast cancer, which is a terrible breast malignancy that has yet to find an effective treatment. IMMU-132 (sacituzumab govitecan) binds to a protein called TROP-2 believed to be found on many cancer cells, which makes the product capable also of targeting several other cancers. Good news also for IMMU-132 is that on February 26, 2016, the FDA has granted it  a Breakthrough Therapy designation.

These investors believe that Seattle Genetics must have thoroughly studied IMMU-123’ potential and results and was satisfied with what it has observed, otherwise it wouldn’t have expressed its conviction that IMMU-132 is worth developing. Clay Siegall president and chief executive officer of Seattle Genetics said that IMMU-132 will complement the company’s “rich pipeline of late- and early-stage programs by providing a potential near-term opportunity for Seattle Genetics to commercialize a second drug in the United States. The agreement offers an opportunity to expand the firm’s international capabilities in Europe and elsewhere.   

Earlier trial data have shown that IMMU-132 achieved an objective response rate of 29 percent and a median duration of response of 10.8 months.

SGEN’s expertise and track record in ADC technologies and ADC drugs augment the odds of success in putting IMMU-321 on the market, which adds to the optimistic investors enthusiasm for the licensing agreement. Adding IMMU-132 to Seattle Genetics already approved ADC drug Adcetris® (brentuximab vedotin) would stage a huge rally in SGEN. The additional revenues rom this drug’s sales would take this firm into profitability, which it has not yet attained in spite of the fact that its marketed product Adcetris is approved for several indications.1

1. Adcetris is approved Classical Hodgkin lymphoma (HL) after failure of autologous hematopoietic stem cell transplantation (auto-HSCT) or after failure of at least two prior multi-agent chemotherapy regimens in patients who are not auto-HSCT candidates. It is also approved for classical HL patients who are at high risk of relapse or progression as post-auto-HSCT consolidation and for  systemic anaplastic large cell lymphoma (sALCL) after failure of at least one prior multi-agent chemotherapy regimen.

Prohost believes that the reward of this agreement overcomes the risk of failure.   

Other Good News will be posted in the next hour under Today’s Highlights

Prohost Forward-Looking Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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